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How to spot and invest in successful start-ups

There’s a lot of potential in start-ups – if you choose them well, they can increase the value of your investments by much more than standard ‘safe’ investments in mature companies. That is balanced, of course, by a higher risk factor – a third of new businesses fail within the first two years and half of them fail within five years. What’s the secret to choosing the right ones? It’s actually the same thing as in many other areas of business: be patient, do your research and aim to forge the right connections.

Assess their viability

The first stage of establishing a start-up’s potential involves assessing the basics. Does it have a coherent and convincing business plan? Does it have a unique selling point with real market potential? Has it identified viable supply chain and distribution dynamics, and is it in a position to network effectively? What is the value of the equipment and other assets it has acquired so far?

Research the people involved

With a start-up it’s obviously not possible to research company history as you would in other circumstances, but what you can do instead is to look at the CVs of the people in the company and find out how they have performed in the past. Look at their qualifications and experience but also at their connections and the ideas they bring to the business. Always aim to meet them in person if you can, because you’ll need to determine whether or not they have the drive and commitment to turn their vision into reality.

See what other investors are doing

There’s no point in investing your money in a company if it’s not enough to get it off the ground and other investors don’t seem interested. Look out for companies that are already attracting attention in online trading forums. A lot of investors being excited about a start-up doesn’t necessarily indicate that it’s primed for success, but if it can’t attract investors at all, it probably won’t attract customers either.

Consider what you can contribute

If you become a major investor in a start-up, you won’t necessarily find yourself taking the passive role of most shareholders in large corporations. You may well be asked for advice and you could even be given a seat on the board. Acting as a mentor for its directors can improve its chances of success – and therefore your chances of making good on your investment. Think about what you have to teach and whether or not your expertise can reduce weaknesses in the company.

Follow your passions

Finally, look out for start-ups that make you feel excited. Perhaps you want to support initiatives that help the environment. Perhaps you want to help people from ethnic minorities get ahead in business, or perhaps you simply love the company’s product and feel sure that other people will too. Whatever the reason for your passion, it will make it much easier for you to maintain a commitment and keep on making the effort to help your chosen start-ups grow.

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